How REACH impacts electronics components use

Reference Link:
http://www.allbusiness.com/government/international-organizations-bodies/12283847-1.html

How REACH impacts electronics components use: seven steps on navigating the new set of regulations for those importing assemblies to the EU.

By Schultz, Steve
Publication: Circuits Assembly
Date: Sunday, March 1 2009

The requirements of the European Union's REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) Directive are massive and involve manufacturers and importers of chemicals, compounds and articles. Here are seven basic points about REACH that every manufacturer of electronics assemblies selling product in Europe must understand.

1. No data, no market. If your company builds electronic assemblies for import into the EU, you are directly impacted by the REACH requirements. Failure to comply with these new regulations risks having your products denied access to the European market.

2. Reporting requirements. Electronic components are "articles" under the definition of REACH, as are electronics assemblies, and are subject to specific reporting requirements with regard to Substances of Very High Concern (SVHCs). The REACH Directive requires that SVHCs be controlled, reported, and eventually phased out in favor of safer materials when it is technically and economically feasible.

The manufacturer of electronics assemblies must determine if the electronic components used in their products contain any of the SVHC restricted chemicals/substances. If present, REACH requires that importers to Europe of articles, or manufacturers of articles in Europe, provide information on SVHCs greater than 0.1% w/w in the article to the immediate downstream recipient and to any other consumer that requests it. This requires the manufacturer to aggregate the total weight of each SVHC contained in its finished product and represent it as a percentage of the total weight of its product. This information must be provided free of charge and made available within 45 days.

Starting in 2011, manufacturers and importers also will be required to report this information directly to European Chemical Agency (ECHA) if it is greater than 0.1% w/w and the manufacturer imports greater than one metric ton of the SVHC into Europe each year. However, manufacturers need not report this information if they can demonstrate that the substance is already registered for the same use, or prove that the SVHCs in their product cannot be released during its lifecycle or during the disposal process.

3. Why the concern about SVHCs? SVHCs have major health consequences. These are chemicals or substances that have been demonstrated to be carcinogens, mutagens and reproductive toxins; or they have been identified as being persistent, biocumulative and toxic; or fall into a category considered "Substances of Equivalent Concern," which includes endocrine disruptors.

ECHA identifies SVHCs on what the industry has come to call the "SVHC Candidate List" (Candidate Substances for Authorization). The initial "Candidate List" includes fifteen chemicals/substances and can be accessed at http://echa.europa.eu/chem_data/candidate_list_table_en.asp.

Over time, many more chemicals and substances will be added to the Candidate List, with some experts estimating as many as 1,500 SVHCs eventually will be identified.

4. Sunset date. At some point in the future, ECHA will designate a "Sunset Date" for each SVHC. After that date, manufacturers will be required to stop using the component containing the SVHC or to obtain specific ECHA authorization to continue using the component. Firms seeking authorization to continue using an SVHC after the Sunset Date must demonstrate that the socioeconomic benefits from its use outweigh the SVHC risk to society.

To maintain a global market for their products, component manufacturers will eventually have to replace SVHCs with substitute chemical/substances. If the electronics industry's experience with the European RoHS directive is any indication, this Sunset provision will result in the discontinuance of many components and the performance requalification of others.

5) No part number change. There is no indication component manufacturers will change part numbers as a result of the migration to substitute chemical/substances, and there is no official "REACH Compliant" designation for the component as there was with RoHS-compliant components. As such, there will be no component marking or labeling, making identification between a part number containing the SVHC and the same part with a substitute chemical/substance problematic. This situation becomes enormously more complicated when you consider that a component may have multiple SVHCs that are phased out of the component manufacturer's supply chain at different points in time.

6. Obtain SVHC information from component manufacturer.

Only the component manufacturer is in position to provide detailed SVHC data on the electronics components that they manufacture. They control the manufacturing process, and only they are in position to know when their internal processes change or when they change raw material vendors. The industry will be best-served if component manufacturers work together to uniformly list SVHC data openly on their websites using standard material data reporting formats.

7. Establish a REACH task force. As with the RoHS transition, many firms are underestimating the time, expense and energy necessary to meet all REACH requirements. REACH is much more complicated than RoHS and will grow in complexity over time. Each company in the electronics industry, if not already doing so, should establish a cross-functional task force composed of engineering, quality, purchasing, operational, finance, marketing, IT, legal and other personnel to begin tackling this latest EU environmental initiative.

While REACH is expected to have a significant long-term impact on the electronics supply chain, distributors can help minimize the impact. Distribution plays a central role in the supply chain and the unique ability to facilitate communication between OEMs and component makers. Further, diverse technical resources offered by distributors can help guide OEM design engineers by offering component options that don't include non-registered chemicals or SVHCs. By establishing open communication channels early on with authorized distributor partners, manufacturers and importers of chemicals, compounds and articles can help minimize the possibility of future supply chain disruptions.


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Steve Schultz is director, strategic planning and communications, Avnet Logistics (avnet.com); steven.schultz@avnet.com.

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Siemens AG's $1.6 Billion Penalty for Bribing Foreign Officials is a Warning to the International Energy Industry

Via Renewable Energy World:
Seattle, WA and Boise, ID
6 January 2009

For over 30 years, companies operating in the global energy arena have had to comply with the U.S. Foreign Corrupt Practices Act ("FCPA"). During the past 10 years, other countries have enacted their own versions of the FCPA. International energy companies that have thus far discounted or ignored these anti-corruption laws recently received a $1.6 billion warning from the U.S. and German governments.

The FCPA prohibits companies (both private and publicly traded) and individuals from paying or promising to pay foreign officials (defined broadly), directly or indirectly, anything of value with the corrupt intent of obtaining or retaining business. The FCPA also mandates internal accounting controls and record-keeping practices aimed at preventing and detecting illegal bribes. The penalties for FCPA violations are stiff. Companies may face criminal fines of up to $2 million per violation, civil penalties of up to $10,000 per violation, and disgorgement of any benefit the company received by the violation. Individuals face criminal fines of up to $100,000 or imprisonment for not more than five years, or both, per violation, and civil penalties of up to $10,000 per violation. Companies may also be prevented from participating in U.S. government procurement and contracting programs. On December 15, 2008, Siemens AG, a German conglomerate company, and three of its subsidiaries ("Siemens"), pled guilty in U.S. federal court to violating the FCPA. As part of its settlement with the U.S. Department of Justice ("DOJ") and the U.S. Securities and Exchange Commission ("SEC"), Siemens agreed to pay a $450 million criminal penalty and to disgorge $350 million in wrongful profits. On the same day, Siemens announced an agreement with German prosecutors to pay a €395 million ($569 million) fine for violating Germany’s anticorruption laws, adding to the €201 million ($285 million) that a Munich court sentenced Siemens to pay in October 2007. The $1.6 billion penalty Siemens must pay U.S. and German authorities is roughly 35 times larger than any previous anticorruption settlement. This staggering figure does not include the €850 million ($1.2 billion) Siemens has reportedly paid to attorneys, accountants, and other service providers to deal with its global bribery scandal since late 2006. Nor does it include the significant sums Siemens must pay an outside FCPA compliance monitor for the next four years as part of its settlement with the DOJ and the SEC. Wakeup Call for the Global Energy IndustryU.S. authorities estimate that Siemens paid $1.4 billion in bribes to foreign officials in Asia, Africa, Europe, the Middle East, and the Americas, and that a significant portion of this illegal activity occurred in the energy industry. Indeed, starting in 2001, Siemens’ Power Generation and Power Transmission and Distribution divisions paid at least $356.9 million in bribes to foreign officials in multiple countries. In recent years, once the DOJ and the SEC have learned of one company’s violation of the FCPA, they have increasingly expanded the scope of their investigation to include other players operating in that industry. The business of energy companies is highly dependent on the discretion of governmental agencies (including development banks, which qualify as "foreign officials" under the FCPA). Siting, permitting, environmental review and enforcement, local community support, responding to RFPs, negotiating and performing under power purchase agreements, conducting project build-out, establishing generation interconnections and transmission tie-ins, obtaining transmission services, obtaining subsidies or tax advantages, and complying with safety and antitrust requirements: all of these aspects of an international energy company’s business, as well as other operations, often involve the discretion of a foreign official. Some of these officials expect bribes from companies (or third parties engaged by companies) in exchange for favorable treatment. The DOJ’s and the SEC’s discovery of Siemens’ corrupt activities has cast a bright spotlight over the global energy industry, making it especially fertile territory for industrywide FCPA dragnets. Lessons Learned from the Siemens Case Siemens paid massive fines for violating the FCPA’s accounting and record-keeping provisions, demonstrating the importance of a robust compliance program. The Siemens settlement provides many additional lessons and reminders for energy companies, including:

	•	Vicarious Liability for Third Parties: Siemens’ foreign business consultants played a significant role in bribing foreign officials to secure business advantages in the energy industry. The FCPA can leave companies and individuals vicariously liable for the conduct of third parties, like consultants, distributors, and sales agents, even if the company lacks actual knowledge of their wrongdoing. Accordingly, the mere failure to recognize and investigate a foreign business consultant’s suspicious activities may expose a company to FCPA liability. Such vicarious liability makes it especially important for companies to (1) conduct due diligence on their potential business consultants; (2) include FCPA-specific representations, warranties, covenants, audit rights, and termination rights in all business consultant contracts; and (3) train employees on how to recognize the red flags associated with business consultants’ unsavory activities and report these red flags to management. Even compliance-conscious energy companies can become entangled in FCPA enforcement actions if they do not have robust compliance programs that are tailored to specific industries and geographic locales.
	•	Tone at the Top: The DOJ and the SEC have publicly criticized Siemens’ senior management for tacitly condoning bribery of foreign officials as a legitimate business strategy. Both agencies have also acknowledged an intention to pursue FCPA criminal penalties (which could include jail time) against Siemens executives, employees, and consultants who participated in the bribery schemes. In short, Siemens lacked the necessary "tone at the top" to foster a culture of FCPA compliance within the company. Companies can take a crucial first step toward avoiding this scenario by working with their attorneys to draft a clearly articulated policy against FCPA violations. This policy should highlight prohibited behavior, accommodate employees who blow the whistle on compliance violations, and set forth disciplinary procedures to address such violations.
	•	Internal Accounting Controls: The DOJ and the SEC based their charges against Siemens almost exclusively on the FCPA’s accounting and record-keeping provisions. Siemens’ subsidiaries attempted to cover up bribes by routing the money through slush funds or intercompany accounts and recording the illegal payments with misleading labels like "commissions." To avoid illegal accounting tactics, businesses should centralize their accounting systems to ensure corporate headquarters review all foreign financial transactions. Careful analysis of the financial records of employees and business partners abroad can enable businesses to quickly detect and eliminate conduct prohibited under the FCPA.
	•	FCPA’s Jurisdictional Scope: Siemens is a German corporation with its principal place of business in Germany, and many of the bribes it paid abroad did not implicate U.S. territory in any way. Nevertheless, Siemens is subject to the FCPA because it has listed its securities on the New York Stock Exchange since 2001 and, therefore, qualifies as an "issuer" under the FCPA. Moreover, in many instances, Siemens routed bribes through U.S.-based banks, providing the U.S. government with an additional jurisdictional basis for pursuing Siemens under the FCPA. These facts serve as a reminder of the FCPA’s sweeping jurisdictional reach. All U.S. companies with international operations—and many non-U.S. companies—have FCPA liability exposure.
	•	Cross-Border Enforcement: The cooperation exhibited in the Siemens case between the DOJ and the SEC, on the one hand, and the German enforcement agencies, on the other, is a noteworthy development in cross-border FCPA enforcement. Companies should recognize that the DOJ, the SEC, and their foreign counterparts share FCPA-related information about the non-U.S. operations of companies subject to the FCPA.
	•	Cooperation with Government Investigations: The DOJ and the SEC have indicated that Siemens’ total FCPA penalty could have been considerably larger than $800 million. Indeed, application of the Federal Sentencing Guidelines would have resulted in an FCPA criminal fine of between $1.35 and $2.7 billion. Due to Siemens’ "exceptional" cooperation with the U.S. government’s investigation and demonstrated commitment to remediating its operations, however, the DOJ and the SEC exhibited leniency. Siemens’ strategy of cooperating with authorities, rather than attempting to stonewall them, provides a model for future targets of FCPA enforcement actions. For more information, contact Ashley Henry, Energy Industry Liaison, 503-294-9506, ahenry@stoel.com

For Further Information

• Energy Law Alert
• Stoel Rives LLP
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